The Second Commissioner of Taxation has forwarded for my advice the following memorandum:

The matter upon which your opinion is desired is the meaning of the word ‘evasion’ in section 170(2)(a) of the abovementioned Act.

Section 170(2) of the Act reads as follows:

1. …
2. Where a taxpayer has not made to the Commissioner a full and true disclosure of all the material facts necessary for his assessment, and the Commissioner is of opinion that there has been an avoidance of tax, the Commissioner may–
1. where he is of opinion that the avoidance of tax is due to fraud or evasion–at any time; and
2. in any other case–within six years from the date upon which the tax became due and payable under the assessment,

amend the assessment by making such alterations therein or additions thereto as he thinks necessary to correct an error in calculation or a mistake of fact or to prevent avoidance of tax as the case may be.

The view taken by this Department is that the word ‘evasion’ in the above-quoted section connotes the avoidance of tax owing to unreasonable carelessness of the taxpayer in the circumstances of the particular case.

The basis for the foregoing view is that the law in sections 37 and 66 of the previous Act contains references to avoidance of tax by fraud, evasion (section 37) and inadvertence (section 66). It forgives inadvertence and punishes fraud (intentional evasion) most severely. Consequently, the view is held that ‘evasion’ as used by Parliament in the Income Tax law connotes something between intent and inadvertence to which substantial blame is attachable. In this respect the previous Act and the present Act are identical in all material respects.

In a recently published book–’The Law of Income Tax (The Commonwealth) Ratcliffe and McGrath and J. W. R. Hughes’⁽¹⁾ at page 948 the views of the authors of the book are expressed on the meaning of ‘evasion’, namely:

The word ‘evasion’ is used in section 170 of the Income Tax Assessment Act 1936–1937 in contrast with the word ‘avoidance’. This is clear by its association with the word ‘fraud’ and the purposes of the provision in which it appears. As used in section 170 it involves dishonesty.

The views of the authors of the book are apparently based upon the form of section 170 of the Income Tax Assessment Act 1936–1937, which deals with two types of case, namely, those in which fraud or evasion is present, and all other cases. This means that ‘all other cases’ are cases in which fraud or evasion is not present, so that ‘all other cases’ could very well cover ‘cases of unreasonable carelessness in the circumstances’ as well as ‘cases of either carelessness, inadvertence and ignorance’. When examined in this view, the form of
section 170 might be regarded as representing a decision by Parliament that, even if the Department should discover avoidance of tax by unreasonable carelessness in the circumstances, in respect of assessments more than six years old, no further action to recover the tax thus avoided should be taken.

The interpretation of ‘evasion’ as connoting dishonesty is an interpretation which does not authorise the departmental administration to assume dishonesty in any case; rather does it involve the Department in being able to prove dishonesty. There are, however, large numbers of cases in which such a charge could not be proved; consequently the revenue could not in future receive any additions in such cases from amendment of assessments that are more than six years old.

I incline to the view that the authority to reopen any past assessments in a case where the Commissioner is of opinion that evasion exists, was intended to treat evasion as covering cases of unreasonable carelessness in the circumstances. If, however, the Board of Review or the Court should adopt the view that evasion connotes dishonesty, then, for the future, it would not be possible to reopen assessments that are more than six years old, merely on the ground of unreasonable carelessness.

The meaning of the word ‘evade’ in section 234 of the Customs Act 1901–1920 was considered by the High Court in Wilson v. Chamber and Co. Pty. Ltd. and others, 38 C.L.R. 131. You may desire to refer to that case in connection with the question raised herein.

It would be appreciated if you would advise me urgently as to the extent, if any, to which the present terms of section 170 should be amended so as to cause liability to have assessments amended where the causes of avoidance of tax have been unreasonable carelessness in the circumstances.

The meaning of the word ‘evades’ as used in the early States Acts relating to death duties has on several occasions been considered by both the House of Lords and the Privy Council. The word is there used in connexion with gifts of property with intention to evade death duties. In Simms v. Registrar of Probates (1900 A.C. 323), concerning the Succession Act 1893 of South Australia, Lord Hobhouse in delivering the judgment of the Privy Council said (p. 334) ‘Everybody agrees that the word is capable of being used in two senses; one which suggests underhand dealing, and another which means nothing more than the intentional avoidance of something disagreeable’.

Consideration was given to the meaning of the word ‘evades’ in section 234 of the Customs Act 1901–1920 in Wilson v. Chambers and Co. Pty. Ltd. (38 C.L.R. 131). That section makes it an offence to ‘evade payment of any duty which is payable’. The Court held that mere omission to pay did not constitute evasion. In a careful consideration of the intention of the Legislature in using the word ‘evades’, Isaacs, J. contemplated the possibility of its including negligent or unreasonable conduct. At page 144, His Honour said:

if, legally owing the duty, the importer has not merely omitted to pay, but has omitted without any reasonable grounds for withholding payment, he has ‘evaded’ payment. If, however, he can show any reasonable excuse for omitting to pay, he does not evade payment. He may genuinely and without negligence be unaware of the facts constituting liability; he may have misunderstood a regulation or a law; he may, though perfectly cognizant of all necessary facts, be strongly advised that either on construction or constitutionally the law does not reach him. Such a man does not, in my opinion, ‘evade’ payment. On the other hand, if his ignorance of facts arises through his own unbusinesslike conduct, so as to be unreasonable in his case want of knowledge is no reasonable excuse.

He therefore concluded that section 234(a) was contravened when there was intentional non-payment without honest and reasonable excuse of duty which was payable. So far as ‘reasonable excuse’ is concerned, however, the views of Higgins, J. were not in accord with those of Isaacs, J. ‘I cannot, however,’ said Higgins, J. at p. 148, ‘accept the gloss on the section proposed by my brother Isaacs–that the words without reasonable excuse are implied.’ ‘To say the least’, said His Honour on the same page, ‘“aevade” would seem to connote the exercise of will in avoiding.’

The views of Starke, J. are expressed on p. 151 as follows:

Clearly, in my opinion, the word ‘evade’ in the Act does not necessarily involve any device or underhand dealing for the purpose of escaping duty; but on the other hand it involves something more than a mere omission or neglect to pay the duty, It involves, in my opinion, the intentional avoidance of payment in circumstances indicating to the party that he is or may be under some obligation to pay duty. The circumstances may consist of knowledge, or neglect of available means of knowledge, that the omission to pay is or may be in contravention of the Customs law.

Knox, C.J. based his decision on the failure of the evidence to prove more than mere omission. Rich, J. did not discuss that point.

Turning to section 170 of the Income Tax Assessment Act, however, certain new features are encountered. In the cases noted the word ‘evades’ is used without an associated word. In the Income Tax Assessment Act the word ‘evasion’ is associated with the word ‘fraud’, and the passage on page 948 of ‘The Law of Income Tax’ to which the memorandum refers indicates that the authors were basing their interpretation on this association by implying the rule of construction known as noscitur a sociis or ejusdem generis. This rule is applied, however, to the interpretation of general words associated with specific words (Smelting Co. of Australia v. Commissioners of Inland Revenue, (1897) 1 Q.B. 175 at p. 181), and its application to the present case is doubtful. ‘The rule … is one which … ought to be applied with great caution because it implies a departure from the natural meaning of words’ (Ibid at p. 182).

In my opinion, the interpretation of ‘evasion’ becomes less difficult if attention is paid to the question ‘evasion of what?’ In the cases noted that question does not arise; ‘evades’ there relates to the payment of death duties or the payment of customs duty. Section 170(2)(a) of the Income Tax Assessment Act refers to an ‘avoidance of tax’ due to ‘fraud or evasion’. In my opinion, that no more means ‘evasion of tax’ than it means ‘fraud of tax’. The reference is to avoidance of tax due to fraud or avoidance of tax due to evasion. In the former instance the word ‘fraud’ sufficiently described the cause of avoidance, but in the latter instance ‘evasion’ is a word which cannot stand alone and immediately raises the question, what is it that the taxpayer evades which results in an avoidance of tax? The answer is, I think, to be found in the opening words of the subsection. If the taxpayer evades making ‘a full and true disclosure of all the material facts necessary for his assessment’ and his evasion results in the avoidance of tax, the conditions of the section are satisfied and the Commissioner may amend the assessment at any time.

The taxpayer is under a statutory duty to lodge a return making a full and true disclosure of all the material facts necessary for his assessment. If he refuses to take the trouble to lodge such a return or is unreasonably careless in its preparation, with the result that the return lodged is only a colourable and inadequate performance of what the Act requires, I consider that he has evaded the duty cast upon him by the Act. If as a consequence there is an avoidance of tax, then there is an avoidance of tax due to evasion, although there may be no fraud or dishonesty.

It will be appreciated that I am advising on a hypothetical question without any facts to which to apply my interpretation of the section. There may be instances of carelessness which would not constitute evasion but, generally speaking, I am of the opinion that, where a taxpayer fails to take reasonable care in the preparation of his return, or in the keeping of records upon which his return is based, he evades a statutory duty; to use the words of the Privy Council in Bullivant’s case, ‘there is an intentional avoidance of something disagreeable’,⁽²⁾ namely the taking of the time and care to lodge an adequate and correct return.

In my opinion, therefore, the practice of the Commissioner is substantially correct.

[Vol. 31, p. 568]

(1) Ratcliffe, JV, McGrath, JY & Hughes, JWR 1938, The law of income tax (the Commonwealth): a treatise designed for the use of the taxpayer and his advisers, Law Book Co, Sydney.

(2) Bullivant v Attorney-General for Victoria [1901] AC 196, 199. The quote is a reference to argument made by counsel for the appellants in this matter, who were referring to the judgment of the Privy Council in Simms v Registrar of Probates [1900] AC 323.